COMCEC Financial Outlook 2018
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commercial banks and other financial institutions that accept transferable deposits, such as
demand deposits.9
Since the role of the private sector in economic growth has been increasing all over the world,
this indicator provides a useful measure on how the financial markets and institutions are used
and affect the economy in terms of size. Recent empirical research has shown that economies
with better-developed banking and credit system tend to grow faster over long periods
(Demirgüç-Kunt, Levine 2008)10. In this regard, domestic credit to the private sector to GDP
ratio is a significant indicator to measure the financial depth of any country.
As shown in the Figure 1 below, the OIC average of the private sector credit given by the
domestic banks is lower than the world average. While there has been a slight improvement in
recent years, the size of the private sector credit as a share of the GDP clearly indicates the
underdeveloped nature of the private sector in the OIC countries. OIC average in 2016 reached
38.2%while the world average for the same period realized as 52.8%. Among the OIC countries,
the rates have differed significantly across different income groups. As seen from the graph
below and as expected from the level of economic development, OIC-LIG and OIC-LMIG countries
have low levels of private credits from the banking sector. OIC countries have performed well
improvement over the last 5 years. Especially the rates for the OIC-HIG countries have increased
significantly over the years surpassing the world average and reached 73.2% in 2016.
As a result, it is found that there is a considerable gap between theWorld and OICMember States
average. This is a clear indication of the underdeveloped nature of the private sector and
banking in these countries and this issue can be seen as an important obstacle for investment
and economic growth of the OIC member countries.
Figure 1: Private Credit by Deposit Money Banks to GDP (%)
Source: Authors’ calculation from the World Bank Database
9 Private credit by deposit money banks and other financial institutions to GDP, calculated using the following deflation method:
{(0.5)*[Ft/P_et + Ft-1/P_et-1]}/[GDPt/P_at] where F is credit to the private sector, P_e is end-of period CPI, and P_a is average
annual CPI. Raw data are from the electronic version of the IMF’s International Financial Statistics. Private credit by deposit
money banks (IFS line 22d and FOSAOP); GDP in local currency (IFS line NGDP); end-of period CPI (IFS line PCPI); and average
annual CPI is calculated using the monthly CPI values (IFS line PCPI).
10 Benchmarking Financial Systems Around The World 2012, World Bank
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OIC-LIG OIC-LMIG OIC-UMIG OIC-HIG OIC-Average World Average
2012 2013 2014 2015 2016